Large increases in worldwide government debt coupled with inflationary pressures pose a threat to global growth, although there is optimism about the future, according to the Abu Dhabi Investment Authority (Adia).
The fund, set up in 1976 with a mandate to invest on behalf of the Government to secure and maintain the future welfare of Abu Dhabi, said in its annual review that last year was a time of "considerable volatility, but one that ultimately delivered favourable economic and market incomes".
"Global economic growth proved impressively resilient in the face of considerable uncertainty, and the recovery that had begun a year earlier broadened and gained momentum," said Sheikh Hamed bin Zayed Al Nahyan, the managing director of Adia, who is also chairman of the Abu Dhabi Crown Prince's Court. "This provided investors with solid returns across most asset classes."
Adia, considered one of the world's largest sovereign wealth funds although it does not reveal the size of its investment portfolio, said it returned 7.6 per cent on an annualised basis over a 20-year period as of December 31 last year, an increase of 6.5 per cent to December 2009.
It said it remained confident that returns from equities would revert close to their historical average of between 6 per cent and 8 per cent.
Sheikh Hamed paid tribute to his predecessor, Sheikh Ahmed bin Zayed Al Nahyan, who died in a glider accident last year. "The values instilled by Sheikh Ahmed and his predecessors will continue to guide our actions as we look forward to an increasingly global investment landscape," he said.
Sheikh Hamed said there had been a number of developments within Adia over the past year, including compliance with International Financial Reporting Standards.
Its accounts are reportedly audited by two of the world's biggest accountancy firms, although Adia did not say which ones.
In its report, Adia included new sections on the culture of the fund plus a review of the year by asset class.
The fund does not reveal its exact composition, but has a range of allocations unchanged since last year with equities in developed markets taking the lion's share of up to 45 per cent, followed by emerging market equities, government bonds and cash all accounting for a possible 20 per cent each.
Small cap equities, credit, property, private equity, infrastructure and hedge funds in varying degrees make up the rest of the fund.
About 80 per cent of Adia's assets are managed by external fund managers whose activities are monitored daily. Adia does not invest in the UAE or in the Gulf region except where such investments constitute part of an index.